A patent troll goes down to Texas

MARSHALL, TEXAS—A long-dead dot-com business, revived as a patent-holding company called DDR Holdings, today has new life with a Texas patent victory. Two patents owned by the company, both of which cover a way of creating an online store that it says is widely used in e-commerce, were found valid and infringed.

The victory wasn't clear-cut though. The two defendant companies, Digital River and World Travel Holdings, were ordered by the jury to pay $750,000 each, for a total of $1.5 million. That's a lot of money, but it's less than 10 percent of the $16.2 million that DDR asked for. Putting on a patent trial can cost as much as $1 million, so DDR may not make much from this case.

The courtroom was silent and still while the verdict was read, although DDR's damages expert, Mark Chandler, briefly lowered his head and sighed after the relatively low damages figure was read out.

On his way out of the courtroom, I asked Danny Ross, who owns DDR Holdings together with his son Daniel "Del" Ross Jr., if he had any comment for the public on his win. "After your last article, I don't think I'm going to say anything," he said with a smile.

(His wife did stop and show me some of the drawings of witnesses she made during court proceedings; they were really quite good.)

DDR has three patents in all which it claims cover certain ways of running an online store; the patents have allowed DDR to sue nine companies so far, and now that it has a solid court win in its pocket, many more could be on the way. In addition to Digital River, the targets so far have included a big chunk of the online travel sector, including Orbitz, Expedia, and Travelocity, all of which settled the case before trial.

The Orbitz settlement was revealed at trial to be $475,000, but Orbitz was a smaller player in "affiliate marketing" through other sites, which is the part of the online travel business DDR claims patent rights to. DDR's lawyers tried to use the Orbitz payment to justify its 5.5 percent royalty demand, since the Orbitz payment comes out to more than 6 percent of that company's affiliate marketing revenue, according to data shown in court. The Travelocity and Expedia settlements amounts are confidential.

During the five-day trial, which began on Monday, DDR said that the online stores that defendant Digital River runs for Microsoft, Adobe, VMWare, and several other software makers all infringe one of its patents. It also claimed two patents were infringed by the affiliate marketing system that World Travel Holdings uses to sell cruises online, through companies like Orbitz, and airlines including Alaska and American Airlines.

The case was extraordinary in part because DDR was suing Digital River, an e-commerce company whose business not only pre-dated its patent by more than two years, but thrived in the marketplace; last year Digital River made almost $300 million in revenue. (That includes lines of business that weren't accused in this lawsuit.) By contrast, the dot-com started by the Rosses, Nexchange, was never profitable and went bust in 2000, as soon as it couldn't access more venture capital. Whatever the legal merits of its technology, Digital River had 1,000 clients by the end of 1997; that's more than 20 times the number of merchants Nexchange was working with when it went out of business in 2000.

Danny Ross bought Nexchange's patent applications, made sure the patents got granted, and formed DDR Holdings as a patent-holding company; in 2004, DDR began demanding money from online travel companies. Unless there is an appeal, which is certainly possible, all nine of the companies DDR sued will soon have made some kind of payment for the company's patents.

Both defendants were found to have infringed claims 13, 17, and 20 of the '572 patent; another patent, the '399 patent, had three claims that were used only against WTH, and were also found infringed.

67 Reader Comments

The jury in a patent trial held in East Texas finds for the plaintiff? I'm shocked! Shocked, I tell ya.

I understand the reasoning behind jury trials in criminal cases; a jury of one's peers and all that. However, what's the point in a case like this, especially given the track record of such juries in this particular region? It's not like any of the eight that were on the jury here are anyone's peer for stuff like this...

How much more evidence is needed before action is taken on software patents?

The jury in a patent trial held in East Texas finds for the plaintiff? I'm shocked! Shocked, I tell ya.

I understand the reasoning behind jury trials in criminal cases; a jury of one's peers and all that. However, what's the point in a case like this, especially given the track record of such juries in this particular region? It's not like any of the eight that were on the jury here are anyone's peer for stuff like this...

How much more evidence is needed before action is taken on software patents?

This doesn't even really qualify as a "software patent." At least there, an argument can be made (software is math, math is a process). Granted, not a good argument, but there's an argument.

Look and feel is not patentable. That's like getting a patent on Mickey Mouse; this is clearly trademark territory, or at best copyright (and even that's a pretty hard sell).

Let's be clear here: the patent isn't for the look and feel of something, but rather for a system which can generate an e-commerce site that mimics the look and feel of a source site. DDR claimed that Digital River's late-90s efforts at this didn't do a good enough job at capturing that "look and feel", and thus did not constitute prior art. The patent and infringed claims frequently refer to a "process" for doing so.

However, looking at the previous article, the DDR lawyers were pointing to things from the early Digital River days such as one site missing a navigation bar, and one customer complaining about the product looking bad, as a way of proving how poorly they replicated the "look and feel". The very fact that they were using these kinds of arguments, rather than strictly discussing the process behind their system, makes me skeptical of how broadly they're trying to interpret their own patent.

So my question is -- are they saying their patent covers a specific system for generating an e-commerce site with a mimicked "look and feel", which was infringed, or are they saying their patent covers *any* system which does that? It sounds like they're arguing the latter, and that really shouldn't be allowed, in my opinion.

I understand the reasoning behind jury trials in criminal cases; a jury of one's peers and all that. However, what's the point in a case like this, especially given the track record of such juries in this particular region? It's not like any of the eight that were on the jury here are anyone's peer for stuff like this...

Having had the unfortunate experience of living in Marshall for a few years, I can tell you why it happens. Marshall used to be a big deal in the region, back around the time of the civil war and shortly after. Since then it has been slowly decaying. It's population is basically a lot of very poor people and college students (three colleges/universities in town). Most of the middle class people who work at the business based there actually live in neighboring counties, in nicer small towns closer to more modern cities like Longview, so they aren't eligible for these juries. Obviously the college students aren't going to be called either. That means that the jury pool is pretty much exclusively people who aren't going to have any idea WTF the patent lawyers are talking about, and aren't going to be very inclined to side with the non-Texan lawyers the defendants usually bring in. Combined with the patent friendly judges, the whole thing is pretty much a farce.

We and what legion of pitchforks? Do you think we can count on the East Texas juror pool to lend theirs to the effort? What about the rest of average-Joe America? Will their pitchforks stay in the barn?

What's more likely is that everyone else winds up watching a YouTube video of a few wacko nutjobs - you and me - taking sledgehammers to the Patent Office HQ before getting hauled away in handcuffs and straightjackets.

We and what legion of pitchforks? Do you think we can count on the East Texas juror pool to lend theirs to the effort? What about the rest of average-Joe America? Will their pitchforks stay in the barn?

What's more likely is that everyone else winds up watching a YouTube video of a few wacko nutjobs - you and me - taking sledgehammers to the Patent Office HQ before getting hauled away in handcuffs and straightjackets.

Whether it would have any positive effect I cannot say - but I was thinking more along the lines of a massive, unified rising of support and protest that the system needs to be overhauled - something along the lines and magnitude of the anti SOPA/PIPA activism that was largely successful. The Internet hivemind is capable of success when [we] want it bad enough.

We and what legion of pitchforks? Do you think we can count on the East Texas juror pool to lend theirs to the effort? What about the rest of average-Joe America? Will their pitchforks stay in the barn?

What's more likely is that everyone else winds up watching a YouTube video of a few wacko nutjobs - you and me - taking sledgehammers to the Patent Office HQ before getting hauled away in handcuffs and straightjackets.

Whether it would have any positive effect I cannot say - but I was thinking more along the lines of a massive, unified rising of support and protest that the system needs to be overhauled - something along the lines and magnitude of the anti SOPA/PIPA activism that was largely successful. The Internet hivemind is capable of success when [we] want it bad enough.

My point was that overhauling the entire IP law system, with all its deeply entrenched roots and interests, is going to require much more than even protest of SOPA caliber.

Appeal coming. Seriously.... Texas patent courts? Know to say that 99.9% of all patents are valid even when they are obviously not valid.

They are the 'dunce cap land' of courts.

Smeghead wrote:

The jury in a patent trial held in East Texas finds for the plaintiff? I'm shocked! Shocked, I tell ya.

I understand the reasoning behind jury trials in criminal cases; a jury of one's peers and all that. However, what's the point in a case like this, especially given the track record of such juries in this particular region? It's not like any of the eight that were on the jury here are anyone's peer for stuff like this...

How much more evidence is needed before action is taken on software patents?

Nothing is going to be done until the average American gets loud, angry and perhaps even.... VIOLENT on these issues. It's a little hard to tell the American people "No!" when you have a gun, metaphorical or actual, to your head.

Unfortunately, Americans as well as citizens all over the world have been cajoled into thinking that it is somehow 'barbaric' to do that. No, it isn't. Not when your government is so damned corrupt that non-violent solutions don't work..

Appeal coming. Seriously.... Texas patent courts? Know to say that 99.9% of all patents are valid even when they are obviously not valid.

They are the 'dunce cap land' of courts.

Smeghead wrote:

The jury in a patent trial held in East Texas finds for the plaintiff? I'm shocked! Shocked, I tell ya.

I understand the reasoning behind jury trials in criminal cases; a jury of one's peers and all that. However, what's the point in a case like this, especially given the track record of such juries in this particular region? It's not like any of the eight that were on the jury here are anyone's peer for stuff like this...

How much more evidence is needed before action is taken on software patents?

Nothing is going to be done until the average American gets loud, angry and perhaps even.... VIOLENT on these issues. It's a little hard to tell the American people "No!" when you have a gun, metaphorical or actual, to your head.

Unfortunately, Americans as well as citizens all over the world have been cajoled into thinking that it is somehow 'barbaric' to do that. No, it isn't. Not when your government is so damned corrupt that non-violent solutions don't work..

You, good sir, appear to be of like mind and very inspiring. I wish to subscribe to your RSS feed, thus to prepare myself for the coming battle. Can you recommend a blacksmith experienced in the rework of plowshares?

Appeal coming. Seriously.... Texas patent courts? Know to say that 99.9% of all patents are valid even when they are obviously not valid.

They are the 'dunce cap land' of courts.

Smeghead wrote:

The jury in a patent trial held in East Texas finds for the plaintiff? I'm shocked! Shocked, I tell ya.

I understand the reasoning behind jury trials in criminal cases; a jury of one's peers and all that. However, what's the point in a case like this, especially given the track record of such juries in this particular region? It's not like any of the eight that were on the jury here are anyone's peer for stuff like this...

How much more evidence is needed before action is taken on software patents?

Nothing is going to be done until the average American gets loud, angry and perhaps even.... VIOLENT on these issues. It's a little hard to tell the American people "No!" when you have a gun, metaphorical or actual, to your head.

Unfortunately, Americans as well as citizens all over the world have been cajoled into thinking that it is somehow 'barbaric' to do that. No, it isn't. Not when your government is so damned corrupt that non-violent solutions don't work..

Pardon me for sayin', but you sound like you're from that part of the state.

I think convening a constitutional convention for something-or-other would be simpler. Colonizing the moon would be simpler. Cold fusion would be simpler. Breeding a goose that lays real golden eggs would be simpler. What isn't simple is threatening to barbeque the figurative golden goose that has been laying eggs for a small group of people who think they deserve those eggs more than anyone else. That's not simple, that's suicide unless you have a plan and an army to execute it.

Seriously though ... why does anyone stil have an official presence in Texas? The US is large enough to just let them rot. Incorporate in a more sane state and don;t have anything in Texas. Maybe even exclude texas from your service that may wake them up.

It's 25 million people out of 300 milion and the cost of doing bussiness there appears to outstrip the benefits for larger companies.

this may have been a small number but they usually award insane amounts there. How much profit can you get from those 25 million people that offset the pain of their courts?

Some big anti-patent company needs to host some patent education courses for the general population in these Texas towns. Maybe if all of the potential jurors are a little more educated on the issue, we won't see stupid stuff like this anymore.

I understand the reasoning behind jury trials in criminal cases; a jury of one's peers and all that. However, what's the point in a case like this, especially given the track record of such juries in this particular region? It's not like any of the eight that were on the jury here are anyone's peer for stuff like this...

Having had the unfortunate experience of living in Marshall for a few years, I can tell you why it happens. Marshall used to be a big deal in the region, back around the time of the civil war and shortly after. Since then it has been slowly decaying. It's population is basically a lot of very poor people and college students (three colleges/universities in town). Most of the middle class people who work at the business based there actually live in neighboring counties, in nicer small towns closer to more modern cities like Longview, so they aren't eligible for these juries. Obviously the college students aren't going to be called either. That means that the jury pool is pretty much exclusively people who aren't going to have any idea WTF the patent lawyers are talking about, and aren't going to be very inclined to side with the non-Texan lawyers the defendants usually bring in. Combined with the patent friendly judges, the whole thing is pretty much a farce.

Very interesting explanation. I remember reading once where one of the lawyers was trying to explain why it *was* appropriate for all these cases to go to Marshall. He was basically saying that because Marshall does so many of these patent cases, they therefore have a pool of unusually knowledgable people deciding these cases. It's been awhile since I read this. I'm sure he was referring to the judges in part, but I'd assumed he was also suggesting the juries were more sophisticated than most. I've always thought his explanation didn't jibe with the results that seemed to come out of there.

But of course, it seems like it's the nature of things to pick juries that have no idea WTF is going on. If you ever know something, or had an opinion once about something, they try and disqualify you as a juror.

Seriously though ... why does anyone stil have an official presence in Texas? The US is large enough to just let them rot. Incorporate in a more sane state and don;t have anything in Texas. Maybe even exclude texas from your service that may wake them up.

It's 25 million people out of 300 milion and the cost of doing bussiness there appears to outstrip the benefits for larger companies.

this may have been a small number but they usually award insane amounts there. How much profit can you get from those 25 million people that offset the pain of their courts?

That's the ticket. Let's blame Texas for all the problems in the technology industry. Let's blame 25 million people for the actions of 200,000 people living in East Texas for a system that is broken. That should get things fixed real fast. Let's punish the people for the actions of the trolls while giving the trolls a pass. And in case you haven't noticed, software isn't the only business in Texas. You think there might be other reasons companies come to Texas besides software? I live in that part of Texas you so despise and I work every day to educate people about the issues that face this industry but I am only one person and elections don't happen every day. This is a very blue-collar part of the world with most working in the oil fields with the rest having small farms and all these people know is that somebody a thousand miles away wants to shut down their work and take every thing they have away and you want them to feel sympathy for software patients. Change the system, not the people who don't understand it and could care less.

Copyright and patent are an attempt to externalize risk at the expense of the public. This just makes that much more apparent. It's going to cost tax payers for the court costs. It's going to cost society in lost innovation and progress. It's going to cost us opportunities and have chilling effects in the future. Why, because some companies couldn't hack it in the market and decided they could just leech off of the labor of people trying to actually be productive? This case is a complete farce. DDR doesn't even do anything productive, they just try to extort money out of companies that infringe their obvious and vague patents. Copyright and patent have both been reduced to a system used to extort money from people rather than actually do something useful. They are leeches and should be burned away as leeches commonly are.

There really needs to be a higher bar on what constitutes a valid patent and requires the holder to actually utilize that patent for something other than a property entitlement to beat other businesses down because they did something similar and obvious (use it or lose it, but lawsuits/licenses don't count). The filing process must be more rigorous, of higher scrutiny, and require periodic patent reviews to reduce the number of vague and obvious patents. The patent office should be making determinations whether or not it would promote the progress more by granting the patent or refusing it, as that is the primary goal here, progress. There should be a waiting period where reviewers can hear objections over issues of prior art, vagary, and obviousness. If a patent, old or new, is found to be better off invalidated, then it should be invalidated. Patent is supposed to be encouraging the creation of useful technology for the benefit of the public, not granting titles of property to individuals over ideas.

Seriously though ... why does anyone stil have an official presence in Texas? The US is large enough to just let them rot. Incorporate in a more sane state and don;t have anything in Texas. Maybe even exclude texas from your service that may wake them up.

It's 25 million people out of 300 milion and the cost of doing bussiness there appears to outstrip the benefits for larger companies.

this may have been a small number but they usually award insane amounts there. How much profit can you get from those 25 million people that offset the pain of their courts?

That's the ticket. Let's blame Texas for all the problems in the technology industry. Let's blame 25 million people for the actions of 200,000 people living in East Texas for a system that is broken. That should get things fixed real fast. Let's punish the people for the actions of the trolls while giving the trolls a pass. And in case you haven't noticed, software isn't the only business in Texas. You think there might be other reasons companies come to Texas besides software? I live in that part of Texas you so despise and I work every day to educate people about the issues that face this industry but I am only one person and elections don't happen every day. This is a very blue-collar part of the world with most working in the oil fields with the rest having small farms and all these people know is that somebody a thousand miles away wants to shut down their work and take every thing they have away and you want them to feel sympathy for software patients. Change the system, not the people who don't understand it and could care less.

The whole "blame Texas" thing you are responding to with this comment is a bit of a distraction. This case was heard in the Federal District Court for the Eastern District of Texas. Despite its location, its rulings carry force nationwide. All that needs to happen for a case to be heard there is usually for a patent troll to say "Oh, we have a branch office there." You can be located wherever you want, unless you flee the country entirely -- a tradeoff which despite this isn't worthwhile for most -- you're not getting away.

So relax, let the guy refuse to have anything to do with Texas. He will hurt only himself and accomplish nothing in the way of protecting himself from patent lawsuits.

An election or so ago, there was a big fuss about "a building in the Grand Caymans that has tens of thousands of corporations in it!" in the context of people/companies evading US taxes, referring to all those offshore shell companies using the same services to maintain the legal fiction of having a "presence" there.

One wonders if there is a similar building in Marshall, TX for patent trolls. If so, one wonders if it is flammable.

That's the ticket. Let's blame Texas for all the problems in the technology industry. Let's blame 25 million people for the actions of 200,000 people living in East Texas for a system that is broken. That should get things fixed real fast. Let's punish the people for the actions of the trolls while giving the trolls a pass. And in case you haven't noticed, software isn't the only business in Texas. You think there might be other reasons companies come to Texas besides software? I live in that part of Texas you so despise and I work every day to educate people about the issues that face this industry but I am only one person and elections don't happen every day. This is a very blue-collar part of the world with most working in the oil fields with the rest having small farms and all these people know is that somebody a thousand miles away wants to shut down their work and take every thing they have away and you want them to feel sympathy for software patients. Change the system, not the people who don't understand it and could care less.

For better or worse, it's frankly too much trouble for people to distinguish between the good and bad Texans you specify. It's enough for people to know they don't want to do business there. After all, the insanity might spread to neighboring counties, or take other forms. Rather, it's incumbent upon your "good" Texans to rein in their neighbors, so they aren't all painted with the same brush. It's embarrassing; you should feel bad and do something about it.

I love the ridiculousness of "their tech wasn't nice enough to be prior art, but now it is so we're suing." It's crazy that this was decided in DDR's favor at all since they admit that Digital River was first, but claim that they were better. Weren't patents supposed to protect people who actually did things first? Or am I just ignorant?

I may not be very knowledgeable about the whole patent legal system, but it sounds like this part of it is working right - upholding the patents. The problem I see is that the patent was even granted in the first place.

Worse yet, because the US plays such an important role in the global economy, this is bound to have consequences outside your borders.

Now, jury trials for something as technical as this is A Really Stupid Idea. Even for judges it's not simple, let alone for a bunch of people who have to sit on a trial because a couple of companies can't agree on something. If DDR ordered a hit on the Ross family a jury trial would be in order though.

Aberrant cases like this one always get some people to want to completely abandon the patent system. The system needs to be fixed, but not abandoned. (Patent protection is actually part of the U.S. Constitution, so you'd need to convene a constitutional convention to eliminate it.) There's no question that some patents are granted by the patent office that shouldn't have been. Sometimes, this is the result of overworked examiners or examiners who are more lax than others. Usually, this gets sorted out in litigation, but the problem with this approach is that it is very expensive. It's this expense that gives life to most patent trolls, since they usually offer to license patents for a price that's attractive when compared to the costs of defense and the possibility of an injunction.

Certain district courts periodically become popular venues for patent cases. For a long time, the Eastern District of Virginia was the place to file since it handled patent cases on a rapid schedule. (It was called the "Rocket Docket.") Eventually, it became so overwhelmed with patent cases, that it began transferring them to other courts. The Eastern District of Texas became a popular patent forum years ago for the same reason. Rather than taking two years or more to get to trial, it only took one year. It was also viewed as a patentee-friendly forum because the juries tended to give a lot of deference to American "innovation." As a consequence of the influx of patent cases, most of the judges there became very well-versed in the somewhat arcane world of patent litigation. They developed special rules for patent cases that were intended to streamline the process and minimize the BS. Although this court isn't in a cosmopolitan area, the judges seemed very capable at handling patent cases.

In the ED district of Texas, as in most federal courts, the attorneys who are not licensed in the state need to retain local counsel to work on the case. Ostensibly, this helps the court since the local attorneys are very familiar with the judges' methods and "local local" rules. Many of those attorneys are very knowledgeable about patent cases. In my opinion, the use of local counsel is unnecessary. The downside is that it adds to the expense of the case. But when you go to court, local counsel is with you and the jurors see Texans there for both parties. But one additional tactic that seemed to work for the plaintiffs was to set up a small office in the area to appear like it was a local company, although you should be able to expose that ruse on cross-examination

It used to be very hard to get a case transferred from the ED of Texas to another jurisdiction. In recent years, the ED of Texas has allowed cases to be transferred to more appropriate forums depending upon the location of witnesses, etc. I believe that over time, this court got swamped, cases took longer to get to trial and juries began to come back with defense verdicts. The case which is the subject of the Ars article was essentially a win for the defendants because the damages awarded were relatively low for a patent case. If the plaintiff''s lawyers handled the case on a contingent fee, they probably lost money. So the ED of Texas began to lose some of its luster for patent-holders.

Regarding the use of juries on patent cases, I have mixed feelings about this. Our jury system is one of the things that sets us apart from most of the world. If you've ever served on a jury, you'll find that most jurors take their job very seriously and really want to arrive at a just result. I'd rather have my fate decided by a jury than one judge. The problem with patent cases is that they're so damn complicated that it's hard for jurors to understand the technology involved. (I'm referring to the majority of patents that actually deal with technology.) The role of the attorneys is to take complicated concepts and make them understandable. It's not an easy job, and that's what separates the good patent litigators from the rest. (One way to do this is to use analogies to things that jurors may be familiar with.) Would the use of special judges to hear patent cases be better? I'm not convinced. Besides, each case affords the right to a litigant to move for summary judgment before trial and let the judge decide issues such as infringement and invalidity. If those motions are denied, then the case probably isn't as strong as the proponent of the motion might have thought.

The patent system needs improvement, but the answer isn't to toss it out entirely. Some inventors actually do come up with useful inventions and they should benefit from their hard work. That was the idea behind the constitutional provision. There needs to be a better way to weed out the patent applications for concepts that really aren't innovative or useful before they can be asserted in expensive litigation.

One comment on patent trolls. I don't agree that merely being a "non-practicing entity" makes one a troll. What about someone who invents something useful, but doesn't have the means to market or produce it? Shouldn't that person receive patent protection and be awarded for their efforts? In my opinion, a troll is someone who knowingly asserts a weak patent against accused infringers with the goal of settling for a relatively small amount. Settlement keeps the patent alive even though it might get invalidated if it went through trial and possible appeal. Many accused infringers grit their teeth and pay for a license rather than take the risk of going to trial. I applaud those that refuse to license a patent they believe is not infringed or is invalid, but it takes a certain amount of spine to do so.

Nothing is going to be done until the average American gets loud, angry and perhaps even.... VIOLENT on these issues. It's a little hard to tell the American people "No!" when you have a gun, metaphorical or actual, to your head.

Unfortunately, Americans as well as citizens all over the world have been cajoled into thinking that it is somehow 'barbaric' to do that. No, it isn't. Not when your government is so damned corrupt that non-violent solutions don't work..

Man you poor Americans, Texas keeps hitting you hard on the patents and the school textbooks. But violence? I don't get that. Your country perfected the art of lobbying long ago. I mean you guys got so good at it that your corporate shills don't even try to hide what they are doing anymore. They've handed you a textbook on manipulation and all you guys can think of is to burn a patent office down?

Get some like minded people together. Give yourself some name that invokes a sense of Americanism. Buy some pretty boys, put suits on them, send them to the big IP players. Double talk, lie, tell them whatever they want to hear to get their support and their money. Make contributions to the parties.Start holding charity events for some do-good issues not directly related to your lobby and keep inviting the big names in politic. Make sure they have fun. Buy Harold McElhinny or some other talking heads to come in shake a few hands and read a few lines off your cue cards. Repeat.

Really just look around. Your country is so inventive with this stuff and it certainly seems to work better than pitchforks.